Regulatory Challenges

By Bill Sendelback

There’s a new movement in Canada; it’s called Buy Canadian. In reaction to recent U.S. tariffs and ongoing politics between the two neighboring countries, Canadian hearth product dealers are purchasing even fewer U.S.-made products, and many Canadian consumers are shunning U.S. products to buy Canadian.

The Hearth, Patio & Barbecue Association (HPBA) no longer releases manufacturers’ shipment numbers by product category; that information helped industry members in tracking sales and spotting trends. Now only graphs are published, indicating very general trends. They also are released only to manufacturers who submit their sales data to the HPBA.

However, most Canadian hearth product dealers “seem to be busy with good sales,” says Laura Litchfield, executive director of the HPBA Canada. “But there is a definite movement by Canadian consumers to buy Canadian products.”

Canada Also Faces Regulatory Challenges

While the hearth products industry in the U.S. continues to face environmental and regulatory challenges, such as the NSPS, Canada also has its own challenges, with individual municipalities and provincial governments, in addition to national efforts. Of particular concern is the Canadian national movement to address climate change, “and hearth products often get caught in the crosshairs,” says Litchfield. “Our current political climate recognizes climate change and is seeking to require provinces to address more than just air quality, but also reductions in greenhouse emissions, all supported by federal funding. The HPBA Canada, in conjunction with the HPBA, is working to identify challenges and react proactively.”

A new version of the Natural Resources Canada amendment to the Canadian Energy Efficiency Act is expected to be published soon, with a probable implementation date of January 2020. Applying to vented gas fireplaces, stoves and inserts, the amendment would mandate a seven-day “time-out” period for on-demand pilots and a 24-hour time-out period for main burners – in short, banning continuous pilot lights. A “time-out” period is the length of time after which, if the unit is not ignited, it will be shut off automatically by the ignition system in an effort to reduce gas usage.

The amendment will impose a minimum efficiency of 50% on heater-rated gas appliances, with no minimum efficiency required for decorative gas models.

The province of British Columbia seems to be a hot bed of environmental regulatory efforts. The City of Vancouver’s Zero Net regulations are aimed at the elimination of greenhouse gases and the reduction of the city’s carbon footprint by curtailing the use of natural gas.

Vancouver’s Zero Emissions Building Plan strives to reduce emissions from newly-permitted buildings by 70% by 2020, and 90% by 2025. The law affects high rises of more than seven stories, but as of May 2018, the action now affects townhouses, residential buildings of less than seven stories, multi-family units, and single-family residences of more than 3,500 sq. ft. So far this action does not affect single-family homes of less than 3,500 sq. ft. The HPBA Canada and the HPBA are continuing their “Save My Natural Gas” campaign aimed at Vancouver residences in an effort to counteract Vancouver’s Zero Net regulations.

The Metro Vancouver, BC, area is introducing in its bylaws a law that wood stove owners must register their appliances on an annual basis.

In an effort to eliminate the use of fossil fuels and reduce greenhouse gas emissions, the British Columbia provincial government has introduced and approved its British Columbia Energy Efficiency Act requiring energy efficiency testing and labeling for gas fireplaces manufactured through Dec. 31, 2018. Beginning Jan. 1, 2019, vented heater-rated gas fireplaces must have an efficiency rating of at least 50% and be so labeled. Vented decorative gas fireplaces must also have an efficiency-rating label but no minimum efficiency is required. Both heater-rated and decorative gas fireplaces cannot have standing pilots but must have pilot-on-demand, interrupted or intermittent ignition systems.

Ontario’s new conservative government has canceled its cap-and-trade program for carbon emissions. However, it also canceled wood stove change-outs that would have been paid for with tax funds. Elsewhere in Ontario, the city of Ottawa is awarding $100,000 for a change-out program.

In Québec, the city of Montréal’s ban on wood-burning is becoming more strict. Affected wood-burning appliances are stoves, fireplaces, furnaces, water heaters, and zero-clearance fireplaces designed to burn wood logs or other “solid materials” such as coal. Restrictions now include no use during smog alerts, the appliance must be registered, and all use of the appliance must be stopped as of Oct. 1, 2018, unless the appliance is certified for a maximum 2.5 gph of particulate emissions. All solid fuel appliances can be used during power outages of more than three hours.

Architectural Series from Town & Country.

MANUFACTURERS

It has been an exceptionally strong hearth products sales year for ICC Industrial Chimney Company, particularly in Canada, according to Dan Bonar, director of Residential Sales and Marketing. “All of our customers are seeing sales increases,” he says, “and people are buying more expensive products. Our Canadian economy is extremely strong with our GDP up 2.6% over last year, double what was expected, and all of the country’s economic numbers are up.”

However, Bonar is concerned about the claims of “impending doom” for Canada’s economy predicted by some economists in part because of the recent U.S. tariffs. He notes that the recent housing booms in Vancouver and Toronto have slowed since the Canadian government put additional taxes on the sales of residential housing to foreign investors. “Now those foreign investors are looking at new areas such as Montréal,” he says.

ICC’s U.S. sales also are up but not by as much as its Canadian sales. “The biggest issue is the 25% tariff we now pay when we ship our products to the U.S.,” Bonar explains. “We thought this might be a short term thing, so we did not pass that cost on to our U.S. customers. But recently we’ve had to raise our U.S. prices 5% to somewhat offset the tariffs.”

New for ICC is its venture into wood-burning grills. Its Bol brand grill in its Renaissance line is a high-end model retailing in Canada for $2,500. Even so, Bonar says Le Bol grill already is sold out.

After a record sales year in 2017, first quarter 2018 sales fell at Kingsman Fireplaces, and the company is now seeing a flat hearth products year, according to Dave Ivey, National Sales manager. “Our U.S. sales are up some because of new distributors we’ve brought on board. But here in Canada, consumers seem to be holding off on purchases, confused by the tariffs and the economic situation between our two countries.”

Also driving some of the confusion, particularly for Canadian hearth product dealers, is the uncertainty of regulatory efforts affecting hearth products, such as the elimination of millivolt standing pilot ignition systems for gas models in British Columbia, and the concern that this will spread to other regions.

“Our models already have been switched to IPI systems,” Ivey adds. “This is a huge concern because dealers don’t know what is allowed or how it will be enforced. There’s also concern that IPI systems do not perform well in very cold weather, and consumers don’t understand how to cope with these IPI ignition problems.”

Ivey believes Canadians are “waiting for our housing-market bubble to burst. For three years analysts have been saying that this bubble will burst. Even so, our current economy is okay, and we’re seeing cautious optimism.” Kingsman is less concerned about a housing bubble because it is not in the “down and dirty” builder market, but concentrates on custom homebuilders.

“A surprise for us this year is the uptick in freestanding gas stove sales,” says Ivey, “so much so that we brought back one of our old models and upgraded it.”

Hearth product sales have been “pretty strong” across the board for Pacific Energy Fireplace Products, says Cory Iversen, North American Sales manager. “We forecast a small increase, and we’re doing it. Our gas Town & Country brand is selling very well (and will show) a significant increase, but our Pacific Energy products are not doing as well. Our wood-burners are showing a small increase.”

Housing starts in Canada are one economic indicator Iversen uses for his sales forecasts. “Housing starts in Canada are up significantly, and headed in the right direction for sales of hearth products,” he says. “And our economy is steady. We may see larger sales increases down the road, but I think they might be affected by the volatility of oil prices.”

Iversen says that hearth product dealers believe that purchasing U.S. hearth products now is a “little bit risky. They are concerned about pricing two or three months down the road, and how that might affect them. As a result, many are moving to offer more Canadian brands.”

Sherwood Industries is having a “very strong” sales year overall, but even stronger in Canada with a 34% sales increase up north, according to Cherbel Yousief, president and CEO. “We have not been very strong in Canada with gas fireplaces as we have concentrated on linear models, but we recently designed a new traditional model and that has taken off for us up here.” Yousief also says that Sherwood now is picking up larger Canadian dealers who in the past have paid little attention to the Enviro brand.

Most of Sherwood’s sales growth is in gas hearth products. Pellet models are up about 11%, but wood-burning models are down 20%. “We focus on gas and pellets,” he says, “and wood for us is very small. We’re keeping up with overall demand this year, but next year we’ll have to increase our capacity.”

Canada’s economy is “firing on all cylinders,” according to Yousief. “New home construction is booming – it’s insane – in Canada, particularly in British Columbia, Ontario, and Québec where the population is. We hear homebuilders cannot find enough workers and those who are available want at least $65 an hour. Dealers, too, are having trouble finding employees, and they are having to pay more than $20 an hour for those who want to work.”

Fears in Canada of what may slow the economy, according to Yousief, are the recent U.S. tariffs that have affected product pricing to dealers, and a concern that interest rates may go up in an effort to slow an over-heated economy.

Valor splitwood and limestone.

RETAILERS

Hearth products sales are “pretty good,” according to Zack Fisher, Sales manager of distributor Compact Appliances, Sackville, New Brunswick. “It’s been a busy summer for our dealers and they are optimistic about the season.” Wood-burner sales are strong for Compact as are gas appliance sales led by new growth in gas fireplaces. And pellet stoves are enjoying a “modest rebound.”

Compact Appliances’ distribution area is quite rural compared to most of North America, according to Fisher. “These folks like their energy independence; hence, there are a lot of wood-burners.” The area’s economy has not been particularly strong for the past few years. The new home construction market is very small, and the area has some of the highest unemployment in Canada, Fisher says.

A large portion of Compact Appliances’ product offering is Canadian made. “A lot of our dealers are looking to buy Canadian-made products, and consumers are asking for Canadian products.”

Brian Dingee.

Hearth product sales were “fairly quiet” through August for Brian Dingee, owner of Dingee’s Energy Systems in Centreville, New Brunswick. “Up until then, it had been hot and humid here, 30° C or 86°F, but sales now are starting to pick up.”

With no natural gas in the area, propane has been the gas fuel. Pellet appliance sales have been stronger than sales of propane models, but sales of both pellet and wood models have dropped. “I think pellet sales will come back,” he says. Sales of mini-split heat pump systems (an efficient, electric powered heat pump system that can provide both air conditioning and heating into each room independently) are having a negative effect on Dingee’s hearth sales. “Dealers selling these products are popping up all over. And newer models now are more efficient, even with our colder winter temperatures.”

The economy in Dingee’s area is “steady” with fairly low unemployment. “We’re in a rural area with farming, but also with manufacturing such as a big supplier of firetrucks and military vehicles, and a supplier of all the French fries bound for McDonald’s in North America. New home construction has tapered off with more used homes now on the market.”

Dingee has not cut back on his purchases of U.S. products since he buys through local distributors. But he is concerned about price increases he expects in the late fall on hearth products.

Hearth product sales have been steady, “about the same,” for Woodchuck Heating in Waterville, New Brunswick, says Arnold Culberson, vice president. “We’re in a more rural area of smaller communities. Our economy is flat, including housing starts, and our population is not growing.” Wood and pellet appliances are Woodchuck’s biggest sellers; sales of propane models account for 10 to 15% of the company’s total sales. “New homes are installing heat pumps for primary heating, and mini-splits are cutting into our hearth sales,” he says.

For half of Culberson’s sales, the customer does not even come into the store. “After 40 years in business here, everyone knows us, so they simply call us and place their order.” Most of what Culberson sells are Canadian-made products, and he promotes buying Canadian. “We do get a very few U.S. products through a local distributor,” he says. Culberson also tried selling grills, “but there were just no sales for us.”

Gary Murphy.

Overall hearth product sales are down for Heritage Hearth Products, Halifax, Nova Scotia, but sales of gas-fueled models have been “very strong and steady,” according to Gary Murphy, president. “But this has not been enough to offset wood-burner sales being off 20%, and pellet stove sales are almost non-existent.”

The economy is good in Nova Scotia, says Murphy, but the increasing sales of mini-split heat pump systems are having a big, negative impact on his sales, especially wood and pellet models. “There’s a large marketing effort underway for these systems by the electric utilities backed up by financing, rebates, and other incentives.”

U.S. hearth products have always had higher prices, so Murphy is not cutting back on or selling fewer U.S. models. “Most of what we have always sold are Canadian products, and seldom do our customers ask for Canadian-made. But we are just waiting for the cost impact of recent tariffs on U.S. models.”

Murphy’s outlook is “very positive and optimistic. The world will rebalance itself. In the meantime, we are working on marketing strategies to regain sales particularly for wood-burners.”

Juanita Corrigan.

Hearth products are selling “really well” at Corrigan’s Stove Center, Charlottetown, Prince Edward Island, according to owner Juanita Corrigan. “It’s been an extremely good year, and we are quite busy, particularly selling wood-burning, zero-clearance fireplaces and propane-fueled fireplaces.” New home construction has gone up in the area, and this, plus a stronger local and national economy, have helped Corrigan see a 20% sales increase. On the other hand, Corrigan’s grill sales have been “extremely slow, almost non-existent,” she says.

The effect of the U.S./Canada currency exchange rate seems to have slowed for Corrigan. “People appear to be accustomed to higher prices for U.S. products after the sticker shock last year, and some U.S. manufacturers have lowered their prices for us. Even so, we continue to sell a lot of Canadian products, and now people are looking to buy Canadian.”

Ontario and Québec

Jacques Campeau, owner and operating manager of Campeau Heating in Sudbury, Ontario, says that while he sells mostly HVAC products, his hearth product sales are “holding on but with no growth.” Located in Northern Ontario, Campeau says his hearth product business is basically only during four months of the year, September through December. “Wood-burning is diminishing because of environmental concerns and the work needed to feed and service them. We’ve been strong in gas fireplaces for 20 years, they’re used for backup heating, and we’re now seeing many of these being replaced with newer models.”

But Campeau sees more sales growth in electric fireplaces. “This is a new market for us,” he says. “Used as third or fourth backup, electrics are being sold as room heaters. They can be installed almost anywhere, and they are less expensive than a wood or gas fireplace.” Campeau also is enjoying an increase in sales of fire pits. “With outside fires banned here, this allows a safe, controlled fire. And they are easy to use and relatively inexpensive as a focal point of a patio.”

Campeau is a strong supporter of Canadian-made products. “The tariff issue between our two countries is unfortunate and has affected our hearth market,” he says.

Hearth products are selling “really well” for Bob’s Woodburners & Fireplaces in Thunder Bay, Ontario, says owner Justin Santarossa. “Three years ago, gas product sales were up and wood-burners were my least selling category despite our company name. Now wood-burning, zero-clearance fireplaces are my top sellers because of renewed new home construction and an increase in vacation cottages. Sales of all of our hearth products are up, or at least on par with last year.”

Ten years ago Thunder Bay was a mill town, and people were moving west to find jobs, says Santarossa. “Now we have a growing number of higher-paying, high-tech jobs, and folks are moving back.”

Santarossa tries to purchase only Canadian products, but surprisingly his sales of two big U.S. hearth appliance manufacturers are up. And even with the exchange rate, he can be price competitive with these products. “But with the recent U.S. trade war, our customers are leery of U.S. products and want to buy Canadian,” he says.

Marc Quirion.

L’Attisee in St. Hubert, Québec, a suburb of Montréal, is having a “pretty amazing” hearth product sales year, according to manager Marc Quirion. “With the recent changes to the Montréal law on wood-burning, now allowing models certified to 2.5 gph, legislation is now on our side. We are now selling more wood-burning fireplaces than gas models, and the law is now requiring many consumers to replace their old fireplaces with new certified ones. Our hearth product sales are up about 20%, and we are expecting our biggest sales year ever.” Located in the greater Montréal area, L’Attisee sells mostly fireplaces and few if any wood or pellet stoves.

Montréal’s economy is “great,” says Quirion. “Unemployment is at a 30-year low, the cost of living is very, very low, and downtown is booming with lots of new construction.” Quirion sees the beginning of a real estate “wave” as real estate investors move their searches from Vancouver and Toronto to Montréal.

Quirion is not necessarily cutting back on his purchases of U.S. products. “This disturbing political climate has put us in a tough situation,” he says. “We’re seeing price increases, and we’re crossing our fingers that this tariff problem will go away in two or three months. If not, we’ll have to make some tough decisions on our purchases. Now, however, if customers have a choice, in 99% of the cases, they will choose Canadian models.”

Prairie Provinces

Alberta, Saskatchewan, Manitoba

“Our hearth product sales are pretty good – not crazy, but steady with a lot of retrofits of older fireplaces,” according to Tony Meli, manager of 4 Seasons Home Comfort in Lethbridge, Alberta. “People seem to be getting smarter, preparing earlier for winter with their purchases. We’re finding customers now are quite knowledgeable. They are well informed, know what they want, and as a result they will buy better, higher-end products.”

Gas outdoor fireplaces are a particular sales bright spot for Meli. “But all wood-burner sales are down by a small percentage, while pellet models have dropped off the face of the earth.”

The economy in the Lethbridge area is “very stable,” says Meli. “We’re a farming and manufacturing community, and the ups and downs of the oil patch in other areas of Alberta don’t affect us. We’re getting new factories and support companies.”

Meli is not cutting back on U.S. manufacturers. “We’re still selling U.S. products from companies that want our business and are trying to help us,” he says. But some of Meli’s customers are asking for Canadian products. “If they are looking at two similar products, they’ll buy Canadian.”

Even though the economy has slowed in the Saskatoon, Saskatchewan, area, Wheatland Fireplace’s hearth product sales are “good,” according to manager Steven Semeniuk. While farming is up, the gas and mining industries are down, “but people seem to have become accustomed to it. They are now doing more renovations. Home building is way down, but we deal with high-end, custom builders, and that market is coming back.”

Sales of gas hearth products for Wheatland are up 5 to 10%, says Semeniuk, while sales of wood-burners have almost stopped. “And sales of electric fireplaces have dropped to nothing, one-tenth of our past electric sales.” Semeniuk says that two years ago products were presold even before Wheatland took delivery. “That came to a standstill last year.”

Semeniuk sees a trend toward more clean-faced fireplaces that can be dry walled up to the fireplace opening. “And interestingly, with today’s better insulated new houses, people will pay for a better fireplace, but they want less heat output.”

Semeniuk doesn’t worry about the exchange rate since four years ago he began purchasing predominantly Canadian products. “And people want Canadian products. Many are saying they will buy only Canadian-made.”

The West – British Columbia

Rob Sidoroff.

Hearth product sales are “fantastic, up 15 to 20%,”says Rob Sidoroff, vice president of Ark @ Home in Victoria, British Columbia. “We have a very strong economy here on Vancouver Island with people moving here from the mainland to get away from the very high real estate prices in the Vancouver area – and perhaps to take advantage of the home equity they have accrued.” That movement has resulted in an increase in new construction of condos and townhouses in Sidoroff’s area. “But that is for mostly low-end stuff,” he says, “so we concentrate on custom builders, and that business is great.”

Gas hearth products, especially fireplaces and inserts, are the big sellers for Sidoroff and are the bulk of his sales increases. “This is not a big wood market, and we don’t sell pellet stoves,” he says. “Most of what we do sell are Canadian-made products since we have a heavy supply of strong Canadian manufacturers in our area. But we are not cutting back on U.S. products, and so far customers are not asking for Canadian models.”

Hearth product sales turned on “like a switch” in late August, according to Michelle Berger, Fireplace Sales manager for BC Fireplace Services, New Westminster, British Columbia. “We were quoting jobs, but nothing was happening. I went on vacation in August, and when I came back, all of a sudden we had a lot of new business. We’re gearing up for another good hearth year after steady sales increases over the last eight years.”

Michelle Berger.

Gas fireplace inserts are selling “extremely well” for Berger. “We don’t get asked for pellet stoves, and our sales of wood-burners have declined to less than 1% of our total. We are seeing that customers will pay for high-efficiency hearth models. They know what they want – cleaner styling and higher efficiency.”

The economy in Berger’s area is “good, no big changes, but getting a little bit better every year. People are spending money. We’re not into new home construction, but we do a lot of retrofits.”

Berger always leans toward Canadian manufacturers because of the higher prices, duties, and shipping costs of U.S. products. “We have a lot of good manufacturers in Canada, so we don’t need most U.S. products,” she says. Customers are happy to see Canadian products in Berger’s showroom, she adds, but they are not asking for Canadian-made.

Comox Fireplace & Patio in Courtenay, British Columbia, has always been busy selling gas hearth appliances, but general manager Denise Kinsey recently has seen a “real influx” in gas sales, particularly gas zero-clearance fireplaces and gas fireplace inserts. “We carry a full line of wood and gas products, one of the largest wood stove lineups on Vancouver Island,” she says. “But many consumers have questions about wood-burning with the perception that wood-burning will be banned. We tell them that this is not true.”

Denise Kinsey.

Kinsey points out that one nearby village is considering banning wood-burning, and she is concerned how that will affect other communities if it’s not contained.

The economy in the Courtenay area is “really good,” Kinsey says. “Sky-high housing prices in Vancouver and the Lower Mainland are out of control. People can no longer afford to buy there. We’re getting a huge influx of people moving here from the Lower Mainland and even Alberta. So we’re selling a lot of gas fireplaces for new homes. Our housing values are up 16% this year.”

Kinsey is concerned about the recent U.S. tariffs, the duties and freight costs of U.S. products. “They are definitely affecting our sales,” she says. “Even though we want to continue to buy some U.S. products, we are absolutely cutting back on U.S. purchases. The tariffs and the politics involved have brought up a level of irritation to our customers, so they want to buy Canadian.”

In early September, Hearth & Home faxed a survey to 2,500 specialty retailers of hearth, patio, and barbecue products, asking them to compare August 2018 sales to August 2017. The accompanying charts and selected comments are from the 196 useable returns.

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